Certainly, these funds do what they're intended to do: provide insurance in the time of exploding vol, e.g. to smoothen out the overall returns for funds of funds. I just think people (especially the media) misrepresent the profit/loss profile into something that consistently stays flat in low vol periods and provides huge risk-free payoffs in high vol periods. That just doesn't exist -- by definition. That would be like a life insurance without insurance premiums.
Taleb fund and how it profited
- Thread starter cdcaveman
- Start date
he sticks to his "plan" thats why ..
he bets everyday on the "black swan"
so he may bleed out slowly everyday .. but when the swan strikes..
works for him ..
so basically , instead of winning a lil bit everyday and someday lose big; he focuses on losing a bit everyday in order to win big someday!
he bets everyday on the "black swan"
so he may bleed out slowly everyday .. but when the swan strikes..
works for him ..
so basically , instead of winning a lil bit everyday and someday lose big; he focuses on losing a bit everyday in order to win big someday!
he sticks to his "plan" thats why ..
he bets everyday on the "black swan"
so he may bleed out slowly everyday .. but when the swan strikes..
works for him ..
so basically , instead of winning a lil bit everyday and someday lose big; he focuses on losing a bit everyday in order to win big someday!
did the not so obvious strike again ?
stay antifragile
His strategy has been "loosely" explained in the past. One way to do this without bleeding to death is to take your Principal and invest in FRA (forward rate agreement) for some duration. Take the net present value of that sum and aggressively invest in outliers. You only use the forward interest cash flow to do this, not the principal. If nothing ever happens, you lose nothing but opportunity cost because at maturity you get your principal back. Of course you give up what you "could" have made by simply buying bonds or stocks.
Example. I'm going to make up numbers here for simplicity. Say you could get 5% interest in a year on your capital. The present value on a million dollars is roughly 950,000. That is what you are paying for a million dollars 12 months from now. You take the 50,000 and aggressively look for opportunities. In 12 months you get your million back plus whatever you made on the 50k. If nothing, then in 12 months you have your starting capital back.
I should point out they made a killing on the bond collapse from the 156 handle down to 125 a few years back. They've also done well on some outsized currency plays. They don't just invest in downside S&P. The above strategy is just a template. Obviously you can get creative with that. But it explains how one can do very well on tails and NOT get killed in the meantime.
Example. I'm going to make up numbers here for simplicity. Say you could get 5% interest in a year on your capital. The present value on a million dollars is roughly 950,000. That is what you are paying for a million dollars 12 months from now. You take the 50,000 and aggressively look for opportunities. In 12 months you get your million back plus whatever you made on the 50k. If nothing, then in 12 months you have your starting capital back.
I should point out they made a killing on the bond collapse from the 156 handle down to 125 a few years back. They've also done well on some outsized currency plays. They don't just invest in downside S&P. The above strategy is just a template. Obviously you can get creative with that. But it explains how one can do very well on tails and NOT get killed in the meantime.
And very telling how Mark avoided the question of HOW MUCH this insurance cost over these non-crash years...
He doesn't disclose performance. The only time it gets leaked out is when an investor reports it. He doesn't come on TV and tell people how much they make either. His numbers have been disclosed over the years by various inside investors and they are pretty impressive given what they do. They actually managed to make money when the VIX was sitting in the sub 15 range for several years because there were large moves in commodities and currencies.
You can't make generate any sort of interest outside of 30 day T-Bills without taking any risk. The BM interest rate paid at more prime brokers is around .1-0.15% right now. If you want to do better than that you either take on outright long positions (which are not risk-free) or at the very best at least carry counterparty risk. There is no free lunch.
So you get a risk-free $1,500 annually per million of capital. Good luck hunting 'aggressive OTM option trades' with that.
So you get a risk-free $1,500 annually per million of capital. Good luck hunting 'aggressive OTM option trades' with that.
This is getting kind of heated. I've read various interviews that Taleb had given about his strategy. This is what I gleaned from his strategy disclosure:
1) He sells the body, buys the wings. I assume this is in a ratio where otm is a multiple of atm. Can't recall a reference. Think it was the Guardian interview.
2) Whatever his ratio is, it is enough to cause a daily bleed. See the old Gladwell interview for a reference.
3) Taleb and his colleagues eschew any kind of stat arb or gamma hedging.
4) Universa is designed as more of an insurance policy than an alpha generating hedgefund.
Some of this may have changed over time I assume as Taleb seems to have taken on an advisory role and Spitznagel is now at the helm. Taleb always seemed intent on proving the "correctness" of his investing philosophy while Spitznagel came across as more of a pragmatist. Just my 0.002 FWIW.
1) He sells the body, buys the wings. I assume this is in a ratio where otm is a multiple of atm. Can't recall a reference. Think it was the Guardian interview.
2) Whatever his ratio is, it is enough to cause a daily bleed. See the old Gladwell interview for a reference.
3) Taleb and his colleagues eschew any kind of stat arb or gamma hedging.
4) Universa is designed as more of an insurance policy than an alpha generating hedgefund.
Some of this may have changed over time I assume as Taleb seems to have taken on an advisory role and Spitznagel is now at the helm. Taleb always seemed intent on proving the "correctness" of his investing philosophy while Spitznagel came across as more of a pragmatist. Just my 0.002 FWIW.
This is completely false. For one, it was an example to make the math easy to understand. But one can get some yield further out on the curve and hold to maturity. Sure they have inflation risk which is decent risk to hold in a deflationary world. Yes Virginia, you have to take some risk somewhere. Shocking huh? Nobody claimed he was making billions doing risk free arbitrage. The guy has been in the business for awhile and has been very successful by most any standard. He does what he does. He's not hocing his product to widows and orphans. He is selling his product to high net worth investors who surely can make their own decisions about what to do with their money.